There are not many public theories on how to maximize ERP utilization. There are approaches that do a commendable effort in identifying some of the factors that influence ERP utilization. What is lacking are predictability, repeatability and harmony across the key components of a business solution. In my 25 years of ERP consulting experience, I have never encountered a single customer that utilized over 80% of the ERP software. Given the lack of utilization and the money needed for Cloud ERP implementations, I am convinced this is a problem that finally must be solved! We are in the second generation of ERP software and the only advancement that we in the ERP implementation arena have made is to retract our initial recommendation of customizing ERP for greater customer value!

The purpose of this article is to provide an overview of my theory on ERP utilization. The scope of this article will focus on the Cloud ERP deployment model. I have yet to complete the rigors of the scientific method to verify my theory. However, I would like to share my concepts with you and partner with you in growing the collective knowledge.

Before we jump into the model there is a fundamental assumption that must be addressed. First and foremost, services trump software in an ERP cloud delivery model. If the customer does not have any reliance or trust on the available ERP services, the window for greater ERP utilization is exponentially reduced. Given the assumption that the ERP Cloud vendor provides a competent level of cloud ERP services (prerequisite), I will explain my theory on ERP utilization.

ERP Utilization Is More about Enablement and Less about Automation

First we need to revisit the concept of a business solution, the key components, their relationship, and influence on ERP utilization.

Business Solution Defined

Just as technology has the smallest part to play in ERP implementation success, ERP software has a smaller role to play in ERP utilization. Business process maturity and the organization’s ability to change have a greater impact on ERP utilization. To elaborate on this thesis I will make use of two models:

The reasons why I selected CMMI as the business process maturity model are (1) general adoption and acceptance, and (2) business process maturity characteristics can be observed. I appreciate the fact that CMMI primarily focuses on software development activities and unfortunately ignores business process re-engineering. However, I believe that the CMMI model as effective model to elaborate on my themes on ERP utilization.

I find that Organizational Change Management (OCM) is more of a project-based effort to enable an organization to meet a specific event. This approach works very well with an On-Premise ERP solution where upgrades are measured in years. However, in the more dynamic Cloud ERP solution model, change is more rapid. ERP Cloud updates and upgrades happen in months, not years. What I really like about OCC is the greater focus of providing the organization with the skills and flexibility to handle known and unknown changes. Organizations change one person at a time and if every person has the capacity to be a change agent, then naturally the organization will adopt and manage change faster. OCC is an emerging model, thus there is limited content regarding how to assess and measure OCC for an organization.

If an organization has to wait on an ERP Cloud vendor or a Systems Implementation (SI) consultant to provide guidance on ERP utilization strategies then there is a high probability that the organization will never reach their ultimate goal of effective ERP utilization. The organization’s ERP experience will be more reactive than proactive.

With all that said, consider the following conceptual model:

Linear Regressive Model for ERP Utilization

I propose a multivariate linear regression relationship between business process maturity, organizational capacity model for change with potential ERP utilization. This simplified model is based on the following assumptions:

A set of ERP features require a certain level of organizational and business process maturity for a successful experience. For additional information, see my article on Business Leads and Technology Supports.

Based upon the CMMI level and OCC for the customer, we can infer the ERP features required for a maximum ERP effectiveness.

OCC has a greater influence than CMMI on effective ERP utilization.

Software changes will happen more rapidly in an ERP Cloud delivery model versus a tradition ERP On-Premise model. Therefore, OCC must become an ongoing competency (versus a one-time effort) for long-term ERP success.

“It is generally not fruitful to impose a very sophisticated process on an organization whose maturity is low. The maturity of an organization not only depends on the skill sets of the individuals, but also on the chemistry of the team.” (Alexia Leon, 2012)

Based on the above model, I conclude that customer enablement must be an ongoing exercise that runs in parallel or even precedes ERP automation.

Model versus Reality

I consider myself more of a pragmatist than a theorist. Models are great to elaborate upon concept(s) for discussion and argument. However, conceptual models are limited in the value they provide to customers if there is no method to align reality (i.e., “as is”) with the optimal path. Consider the following illustration:

Actual Versus Model

Key Points and Observations:

In a majority of cases, there is a difference between potential ERP utilization and actual ERP utilization experienced by customers.

In order to promote repeatability, there should be a logical progression that enables customers to maximize ERP utilization (i.e., roadmap).

To minimize ERP Total Cost of Ownership (TCO) and eliminate cost constraints, ERP Cloud vendors should provide customers with the ability to increase ERP utilization without heavily relying on consulting services.

As we continue with the model elaboration, we find that there are regions that are not practical for a given business process maturity and organizational capacity change values. Consider the following:

Potential Values for CMMI & OCC for ERP Utilization prediction

Key Points and Observations:

Areas in red represent a subset of possible values given that the scenario occurrence is highly improbable. For example, an organization with a CMMI level 1 maturity cannot expect to utilize 100% of the features available for a Cloud ERP service.

The goal is to define an ERP utilization approach that is repeatable and reliable. Far too often, customers spend thousands of dollars on a “point in time” ERP strategy that requires additional funds to revise the strategy as the ERP technology changes. The ERP utilization strategy must start with “where the customer is at” and provide a series of ERP features and prerequisite enablement activities in order to increase utilization.

ERP Utilization Roadmap

I propose that long-term ERP utilization should be a series of incremental quick-wins (i.e., Business Process Management) and paradigm shifts (i.e., Business Process Re-engineering). Consider the following illustration:

ERP Utilization Roadmap

Key points and observations:

Any deployment of ERP features that require a significant organization change is not a quick win. People do not change overnight.

An incremental approach like Business Process Management (BPM) is required when deploying new ERP features at the same CMMI level for a given business process.

Set X includes the BPM enablement activities and ERP feature deployments required to align with the logical maturity path. Note that only incremental change is required to implement targeted ERP features (thus, a quick-win).

A radical approach like Business Process Re-engineering (BPR) is required when deploying new features across multiple CMMI levels for a given business process.

Set Y includes the BPR enablement activities and ERP feature(s) deployment required to align with the logical maturity path.

The practical aspects of this model are (1) the roadmap must start where the customer is at in their business process maturity, (2) utilize an increment (agile) approach to build organization momentum, and (3) realize that organizational momentum will carry a customer through the radical changes required for maximizing ERP utilization.

Leveraging the CMMI model as an example of business process maturity, there are incremental organizational change required to process from one maturity level to the next level. However, based upon my experience, there are two key paradigm shifts that must happen in the collective mind of the organization. Consider the following illustration:

Paradigm Shifts for ERP Utilization

Key Points and Observations:

Z represents the paradigm shift from a functional business function focus to a business process focus for organizational optimization.

Z’ represents the paradigm shift that competitive advantage only comes from revenue-generating business processes. Organizations have a limited amount of resources and should prioritize business process maturity priorities accordingly.

Next, I will elaborate on why these paradigm shifts must happen within the CMMI maturity model. Let us refer back to the specific level definitions within the CMMI model:

CMMI Level Characteristics

I conclude that a prerequisite for a business process to mature to a CMMI level 3 (Defined) requires the organization to acknowledge and manage across multiple functional areas (Z). The ability to be more proactive requires a robust communication and coordination of business activities across multiple functional departments. It signifies the first step of an organization to evolve from the traditional management philosophy of “division of labor”.

The next paradigm shift (Z’) requires the customer to understand that (1) some business process (es) are more important than others (i.e., revenue-generating vs revenue-supporting), and (2) an organization has only so many resources (constraint). As we move forward in a hyper-competitive market environment, additional pressures will continue to minimize costs. The model states that all business processes can mature to a CMMI level 5 but the cost realities suggests a greater focus on the competitive, revenue-generating business process (es).

Speaking from practical “hands-on” experience, if customers never breaks through these paradigms then the customer’s Cloud ERP experience will be frustrating rather than enabling. There is no such thing as a “steady state” for Cloud ERP. Either the customer is moving forward with deploying new ERP Cloud features or fixated on the limitations of their ERP Cloud services.

Summary

Even with a cloud delivery model, the key cost associated with ERP has not dramatically decreased. The ratio of ERP software cost to ERP implementation cost has increased from 3:1 to 6:1. It is only a matter of time before the ERP market forces ERP vendors to drastically reduce implementation costs while maintaining a sufficient level of customer enablement. Given the rise and general adoption for Cloud ERP services, ERP utilization is becoming a more strategic competitive advantage for Cloud ERP vendors. What I see as an emerging demand from the ERP market is a reliable, repeatable method for maximum ERP utilization. I have cast the first stone – let’s see what evolves from the ripples in the pond.

I am not arrogant enough to believe that ERP software vendors are the guardians of best practices. Nor do I blindly subscribe to the notion that the customer is always right. What I do know and believe is that a good implementation partner will balance customer needs and wants with the fundamental value proposition of the ERP software to ensure customers have relevant information to make informed decisions. The following blog posting will discuss some practical guidance that implementation partners can utilize to vet business requirements.

You must be given permission to challenge customer requirements

Regardless of your previous experience or how smart you think you are in order to be effective as an ERP implementation partner, you must be given permission by the customer to challenge their ERP requirements. It is rare to receive this permission automatically but rather it must be earned by the implementation partner. Following are core principles I use to earn that permission:

Earning the Right to Challenge Requirements

Knowing ERP functionality is simply not good enough. A competent implementation partner is able to advise and influence their customers to draw the right conclusions and make informed decisions. Next we will discuss how a good consultant guides the customer towards making an informed decision.

Lead by asking informed questions

In my early days of ERP consulting, I was taught to ask open-ended questions to prompt the customer to provide as much information as possible. I agree with this approach as long as the information is value-add and guides the customer down the right path. Too often I see ERP consultants mindlessly ask the customer 100+ ERP functional questions that focus more on “how” than “what” and “why”. The following illustration provides key concepts that questions should drive customers to consider:

Asking Informed Questions

Use questions to educate. Use questions to persuade. Questions should lead your customer to challenge assumptions and perceptions in their current environment. A perceived requirement may be a limitation of the current system or organizational structure. Just remember that asking the right questions is just the beginning to changing minds.

The best pressure is peer pressure

As a third-party external resource with limited knowledge of the customer’s business model, there are limitations implementation partners will have on generating customer ownership and adoption. What consultants should do is facilitate and promote a process where relevant information is presented and evaluated. Do not evaluate business requirements in functional silos but as part of the larger business process across all business stakeholders. Visibility across the business process creates accountability – especially with peers within the customer’s organization.

Understanding the Impact of Business Requirements

The basic value proposition of ERP systems is providing the automation of best practices – that is common business practices – across a broad market/industry. A direct contradiction against this key benefit is when a business requirement has to be addressed via a software customization. Additional scrutiny listed above should be undertaken to validate the additional investment required.

In my humble opinion, good ERP implementation partners educate their customers in how to best utilize ERP software to support their business. This not only requires ERP software knowledge and but more importantly requires the business acumen to understand current requirements and advise on future requirements. Customers, if you are looking for an implementation partner that can act as a leader then you will have to pay a higher rate versus a staff augmentation partner. ERP vendors play a very important role during an implementation – especially where it comes to best practices that are not delivered out of the box by the ERP software. ERP vendors should provide multiple processes and examples of working with customers to influence software roadmaps and/or co-develop automated solutions. Action speaks louder than words! True partnership requires an investment from every player.

I think we can all agree that organizational fit is a key consideration for successful ERP selections and implementations. However, mention the phase “fit/gap” or “gap analysis” and most people will fixate on the ERP software. There are several examples of functional/software fit-gap templates/activities but very few organizational fit-gap templates/guides. The goal of this blog is to shed some light on this very important activity.

What is an Organizational Fit/Gap?

An organizational fit/gap analysis is a comparison of the customer’s existing organizational model that supports the business to the defined organizational model supported (or assumed) by the ERP system. Consider the following illustration:

Organizational Fit Gap Analysis

If you do not know what is changing in the organization then how can you manage organizational change? Too often I see ERP projects only focus on the “To Be” model and expect business users to figure out how to transition. I have also observed that customers see organizational change activities as an opportunity to reduce implementation costs by performing the activity themselves – regardless of their capabilities.

In order to effectively conduct an organizational fit/gap analysis there are two key sources of information that are required:

Information Source

Comments

Customer’s Organizational Structure and Business Processes

A majority of peers and customers believe that this exercise is a non-value-add activity given the imminent organizational change that will occur as part of the ERP implementation.

ERP Business Process Maps

Consider ERP business process maps as a demonstration by the ERP vendor to show how their ERP software supports business processes.

Just as you perform a formal Fit/Gap analysis on ERP functionality you should also consider performing a formal organization Fit/Gap analysis as illustrated below:

An organizational fit/gap analysis should be performed during the ERP selection stage and refined during the early design stages of the ERP implementation. Do not limit yourself to performing this exercise only once. The analysis performed during an organizational Fit/Gap will drive future decisions and implementation activities.

What Activities should an Organizational Fit/Gap Influence?

The organization fit/gap analysis will have a direct impact on your organization change management plan and communication plan. In addition, this analysis will provide insight into user security requirements. Utilizing this approach will highlight how well the predefined ERP user security profile(s) align to the organization’s existing users. As a general rule, the majority of predefined ERP workflows are based upon predefined user security roles; therefore keep in mind that ERP user security profile changes may require additional testing for related ERP workflows.

Predefined ERP implementation tools, templates, roles can provide limited value to an implementation. Too often the ERP market wrongly perceives that these predefined components result in faster implementations. This misconception is most pronounced in the ERP SaaS/Cloud arena. At the end of the day, an ERP implementation should only move as fast as the customer can handle the change. Conducting a formal organizational fit/gap can enable the customer to adapt faster by focusing on the specific changes required for success.

SaaS ERP is the latest effort in the ERP industry to provide a rapid, cost-effective solution for customers who want an enterprise solution. A SaaS deployment model does provide the potential for greater value realization; however, the value proposition is dependent upon appropriate expectations and implementation approach. The purpose of the following article is to provide insight to ensure customers make realistic and informed decisions.

General Expectations for SaaS ERP

I firmly believe that one of the key reasons for failed ERP implementations is that expectations were not correctly established and managed throughout the implementation. Consider the following:

Common Expectations of SaaS ERP

Cheap: The customer does not need to make a huge expenditure to implement and utilize.

Fast: Answer a few questions and have an up and running software in weeks.

Flexible: Business users can make changes. Minimize IT involvement.

Intuitive: Quick to learn and easy to navigate.

We can all agree that the above targets are worthy goals of any ERP solution. However, this is only part of the story. The next section discusses the efforts required to achieve the goals listed.

Desired Results of SaaS ERP

To better understand ERP SaaS expectations we need to elaborate on the desired results that should be realized by customers.

Elaborating on SaaS ERP Expectations

Some of the desired results are directly addressed by the SaaS model but the majority of results are addressed either by (a) the ERP software architecture or (b) the delivery model. Example: SaaS ERP does not require an initial outlay of funding for capital expenditures for hardware and related infrastructure. SaaS ERP eliminates the need for a separate effort for ERP software installation and certification. Yet, it is important to remember that ERP software installation represents at most 5% of the total time required to implement an ERP solution. Therefore the SaaS model by itself does not have a dramatic impact on accelerating ERP implementations.

SaaS ERP Realities

Allow me to share some observations I have regarding the ERP SaaS model that may not appear to be readily evident:

Let’s take one of the above desired results to elaborate on the above diagram. A goal for SaaS ERP is to reduce the Total Cost of Ownership (TCO). One of the key ERP design strategies is to enable business users to tailor the functionality to meet requirements without having IT to make a costly customization. However, it is important to understand the shift of effort from IT to functional users. There may be a reduction in the effort or a change in the nature of the work but the effort is still required. There is no “push button” to eliminate this work.

For another example let’s take the ERP value stream. ERP vendors can create additional value to customers by providing new and enhanced functionality. The leading SaaS ERP delivery model should provide a 3:1 ratio increase in the software release cycle. Yet, it is important to realize that more frequent ERP software releases require additional testing and deployment (organizational change) work. It is interesting to note that many of the leading SaaS ERP vendors do provide an out-of-the-box testing automation solution. Again, the customer will experience a shift from technical to functional effort.

Summary

Sorry if I burst your bubble, but I rather have an informed customer that will have reasonable expectations versus a customer with unrealistic expectations. SaaS ERP is one of many delivery models that ERP vendors offer to customers. While it is true that SaaS ERP provide customers with new options not available previously, it is not a slam dunk for all customers. Developing the customer’s use case and understanding all technical and organizational impacts will better ensure an informed decision is reached.

Like this:

One of the first deployment models for cloud computing was Infrastructure as a Service (IaaS). Currently, there is a price war between the major IaaS providers like AWS and Rackspace to provide the cheapest infrastructure. However, enterprise customers looking to move their ERP solutions to the cloud should focus more on Integration as a Service (IaaS). Integration, not infrastructure, will have a greater impact to TCO and ERP success. In the next sections we will briefly compare the influences that infrastructure and integration have on an enterprise solution like ERP.

Cloud Infrastructure versus Integration

In a previous blog I reviewed the key competencies to consider as part of selecting an ERP cloud provider (ERP Cloud: Finding the Right Provider). Both infrastructure and integration are key considerations yet I view enterprise integration the greater challenge. Consider the following:

Key Cloud Consideration Factors

Cost

The cloud storage war appears to be getting the most press in cloud computing but consider two factors driving this type of pricing strategy

Technology improvements continue to drive down disk storage costs rapidly. Combine this trend with the economy of scale that cloud providers generate to continue driving costs down by another 40% in the next 3 to 5 years.

Moore’s Law highlights the computing hardware trend resulting in greater technology capabilities and driving down MIPS costs. However, the same cannot be said for integration. As discussed in one of my earlier blogs (Best of Breed vs. Integrated ERP), integration costs can be up to 8 times the cost of the ERP software.

ERP Integration Considerations

We have all heard the proverb “A chain is only as strong as its weakest link.” Applying this concept to business software, we would conclude that a business solution is only as strong as its weakest integration.

Business Value Realization

Allow me to make the general statement that outsourcing IT infrastructure to a cloud provider should result in a cost savings to customers. However, I believe that IT organizations will quickly learn that providing this cost savings is a short-term value proposition to their business owners. Ultimately, IT-driven innovation will drive business value realization. Gartner identifies Integrated Ecosystems and Hybrid IT & Cloud Computing as two of the top 10 strategic technologies for 2013. Every ERP solution has a portfolio of edge products/3rd-party integrations to external solutions to provide holistic support of business processes. The only true method of creating business value is through business processes.

Socialization & Collaboration

The ERP software industry is realizing that people have the greatest impact on business results. It is refreshing to see the increase in socialization and collaboration capabilities. Infrastructure is necessary but integration is the critical path to success.

Market Trends

In my opinion, I expect to see the market changing for IaaS providers. Given how important integration is to a viable cloud solution either existing IaaS will grow into a Platform as a Service (PaaS) or will be acquired by PaaS vendors looking to provide global support. Just take a look at AWS and Rackspace’s transition from an IaaS to a PaaS:

History always has a way of repeating itself. Recalling the Y2K problem, storage (infrastructure) was seen as a strategic/limited resource. This view resulted in the programming practice of representing the year with two digits and we all know how that came back to haunt IT organizations. Infrastructure is a cheap commodity when compared to a collaborative, enterprise integration framework. Infrastructure is a key enabler for cloud computing but integration will ultimately determine your success of ERP in the cloud.

In a recent study conducted by Forrester Consulting “Enterprise Cloud: Lessons Learned From Early Adopters” a key conclusion made is “A complete, application-centric, business-aware cloud solution is needed.” Let’s say that your C-level executive stops by your office and asks you to lead a project to develop a business-aware cloud solution. To be successful it is important to understand what you are building. In the following blog I will attempt to define a business-aware cloud solution.

Defining a Business-Aware Cloud Solution

Your project objective is to develop a business-aware cloud solution. As you are a competent project manager one of the first areas you want to define is the project scope. As your humble project assistant, I have searched the internet for you and have leverage greater minds from the University of Edinburgh:

“What different employers mean when they talk about business awareness varies, however their views broadly fall into two areas: (1) understanding an occupation, and (2) understanding the business environment.”

What is Business-Awareness?

I would like to elaborate upon on this definition with the following model.

Defining Business-Awareness

There are three key areas that enable business awareness. The business process area includes the business functions, related-activities, and the individual tasks that must be performed in order to generate the desired business results. The business role(s) area includes the concatenation (grouping) of business activities into responsibilities that can be competently accomplished. Finally, business awareness also requires an understanding how an industry operates and how it is influenced by local, national and global economics.

Now, your experience as a project manager tells you that a well-defined project scope statement not only explains the end result but also elaborates on what is considered out of scope. With this best practice in mind let us clearly articulate on some areas that may misalign the focus on business.

Blurring Focus on Business-Awareness

Please allow me to elaborate. A business function is a necessary structure resulting in a concatenation of activities/tasks that aligns with the skills/experiences of the organization to best support business processes. The ERP software industry started as discrete, functional applications that continue to evolve into enterprise-wide, business process solutions. In general, software applications focus more on business functions requiring the implementation of multiple applications to support an entire business process. As a veteran project manager, you understand that an application focus may result in gold-plating or poor support of functional hand-offs (integration). You also appreciate that technology is only one component of a business solution.

We are halfway to having a better understanding of our project objective. Now, let’s focus on what some may consider the mystical realm of the cloud.

What is a Cloud Solution?

Forgive my “tongue-in-cheek” response above but it is hard to define a clear picture given the varied information available in the marketplace. Once again, I refer to brighter minds (NIST) to provide a definition.

“Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.”

I would like to focus on what’s not in this definition that may be perceived expectations of moving business software to the cloud

Implied Expectations for Cloud

The immediate, short-term savings will be reduction in capital expenditures required for IT infrastructure requirements. As correctly pointed out in the book “Cloud Computing – Assessing the Risks“, there is a general misnomer that there is a risk reduction with the cloud. There is a transference of risk from the IT organization to the Cloud Provider. Technology results (reliability, response, availability, scalability) may lead to business benefits – but it is not a guarantee.

Now that we have a little better understanding of project objective, let’s briefly review the role that the key enablers will play in the implementation of a business-aware cloud solution.

Enablers for a Business-Aware Cloud Solution

As a competent project manager, you know that the project must address all three components of a solution in order to be successful in meeting all expectations. For the sake of brevity we will only focus on a key expectation for each component.

Business Solution Defined

People: People innovate. People accept. People resist. People ultimately drive project success.

Technology: A reasonable expectation is to select a cloud vendor that provides a reliable, secure, scalable IT infrastructure solution on par (or better) than existing services. For business software like ERP to be business-aware, the software must have access to business model, roles, and rule metadata that is maintained by business users.

Summary – Are We There Yet?

Do all the technical components exist in the marketplace today to build a business-aware cloud solution? Technically speaking, the answer is yes if you want to seamlessly integrate multiple technical components with multiple UI experiences, data sources, and training requirements. Will it be a practical and viable solution? I suspect that there is room for improvement. If you wait for a complete solution then it may be too late for your business users. But you are not just a project manager, you are a project leader! You know that this effort is a project program with iterative projects that incrementally build upon the individual project results. Start planning, start delivering!

P.S. I am conducting a webinar: Best Practices for Selecting the Right ERP Cloud Provider on Wednesday, December 12, 2012 1:00 PM – 2:00 PM EDT

Overview – Next stop: The Cloud! Everyone is talking about it but there is a fog of disjointed information out there regarding moving to the Cloud. In this webinar we will demystify the cloud and discuss one of the key activities customers should carefully consider in moving to the cloud – selecting the right cloud provider. We will also discuss some of the key factors to consider as part of your cloud deployment strategy. Register at http://www.oracle.com/go/?&Src=7604459&Act=251&pcode=WWPN12035291MPP257.

Cloud computing is here to stay, but what does that mean for those who sell and implement ERP solutions today?

First, it means that there is a new way in which business software solutions are being purchased and consumed, and that means resellers need to pay close attention to the way they run their business. Secondly, it means that if ERP companies wish to remain in the game, they need to make some significant changes.

Cloud on its own doesn’t affect the validity of ERP. Businesses still require management software to help them run their organization effectively. What Cloud does do however, is level the playing field and make ERP solutions more accessible to the consumer. That means publishers and resellers need to pay attention.

New Cloud companies are popping up every day, and while laggards scramble to bring their on-premise solutions to the Cloud, these born in the Cloud players are discovering faster, easier, and less expensive ways to deliver ERP. Complex, highly customized and bulky solutions which come with a hefty price tag and a collection of features and functionality not required by the end-user are quickly being replaced by pay as you go solutions. Customer expectations are also changing; soon no one will be willing to accept that ERP requires a huge capital expenditure and lifelong commitment without first researching alternatives in the cloud.

Product Lifecycle for Cloud ERP Offering

While Cloud ERP is still an emerging market, it is fair to say that we’re moving beyond the early adopter stage. We’ve crossed the chasm, and are quickly headed towards the early majority market. Within the next 2 years we can expect to see a majority of ERP purchases made in the cloud. In our opinion, Cloud ERP will not be an initial threat to a vendor’s existing up-market ERP customer base. This market is highly saturated (+90%) and today we do not see a compelling value proposition for large customers to move completely to the Cloud. We do see opportunities where Fortune 500 ERP customers may be interested in implementing edge software products in the cloud (ex. travel & expense, self-service, tax calculation and compliance, etc) as part of a hybrid deployment model. Where we do see a threat/challenge to on-premise ERP is in the SMB arena – especially for new customers. This market continues to be a strategic growth area for ERP and customers have a greater flexibility to leverage a SaaS or Cloud model.

The Fate of ERP

While it doesn’t appear that the fate of on-premise ERP solutions is entirely bleak, there will certainly be a marked shift towards Cloud based ones. In fact, the resellers can already feel this happening. There are fewer people out there looking for business management systems in general, and in a time of economic uncertainty and tight budgets, the appeal of an operating expense and a per-seat price is more than appealing. Customers are becoming more likely to change their processes to align with the functions of a less expensive Cloud based solution, than to go through the process of building one which is fully customized. What’s more, people are less likely to pay the large price tag most often associated with ERP services, instead preferring a solution in which they can turn off functions (thus reducing costs) at their leisure.

So no, Cloud isn’t exactly ringing the death toll for ERP solutions, but it is changing them. ERP will always be required by many types of organizations, but on-premise ERP may in fact not survive this shift long-term. If traditional ERP companies hope to survive the transition they need to be proactive about developing their Cloud solutions, and that means more than throwing up a landing page and calling yourself a Cloud player.

So what do you do?

If you’re an on-premise ERP reseller with no Cloud transition plan, you better get started. That means developing a team to strategize taking your solution to the cloud, putting the necessary resources behind it, and understanding why some customers have an inherent fear of the Cloud. If you’re already developing your Cloud solution, then keep at it and make sure you’re not just focusing on the solution, but on the marketing and sales as well. And if you’re already well entrenched with an ERP solution in the Cloud, then you should get ready to defend your competitive position because you won’t be alone for long.

ERP Deployment Types

Additionally, if you’re a company seeking out a new ERP system, you should carefully consider the benefits of using a Cloud solution. While we’re only entering the early majority market, Cloud computing is the wave of the future. As consumption models go, Cloud works for a majority of businesses today, and the list continues to grow. If you’re looking to move some of your capital expenses into operating expenses, and looking for a better way to manage your business, ERP in the Cloud might just be for you.

Guest blog by Jason Carroll with contributions from Brett Beaubouef

Jason is an industry analyst for Software ThinkTank. Software ThinkTank is an online resource that helps businesses keep up-to-date with the latest trends, technology innovations and business solutions through a range of articles, case studies, guides and tools. Visit SoftwareThinkTank.com for more information.